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Eminent domain – what does it mean?

Posted on Sep 24, 2014

The link light rail is currently planned to expand, extending east into Bellevue with long-term goals of extending to Lynnwood. With the expansion of the link light rail, some owners are finding themselves in unfamiliar territory: their property or a portion of their property is being taken under eminent domain.

What is eminent domain? It is the power the government has to seize private property without the owner’s consent. In most cases the property is taken for public use by a state or national government. We are seeing this in our own back yard due to the link light rail expansion.

What do the owners who find themselves in this situation need to know? Ultimately, if the owner’s property is taken under eminent domain, the property owners could have taxable gain to recognize. They may be able to purchase another property to avoid gain recognition. Under Code Section 1033, a taxpayer whose property is under threat of condemnation or is condemned can, within two to four years, reinvest the proceeds in a replacement property to avoid gain on the property.

When condemned under eminent domain, the replacement property does not have to be similar property. For example, if the property condemned was business property, raw land could be purchased as replacement property. There are some restrictions, so it is best to check with your tax professional to make sure the replacement property qualifies.

If you find yourself in the unfortunate situation of losing your property, remember there are tax laws that allow you to defer the recognition of the taxable gain on the property.